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Equity - Breach of Trust. Raponi v. Olympia Trust Company
In Raponi v. Olympia Trust Company (Ont CA, 2023) the Court of Appeal considered a class action certification appeal where the action was dismissed, here in relation to a syndicated mortgage scheme. In these quotes, the court considers whether a trust 'duty to warn' existed, to ground a breach of trust cause of action:[53] Raponi submits that even where the express terms of trust agreements do not give rise to a “watchdog” duty, courts may impose on trustees a duty to warn as part of a larger, general duty of prudence respecting the trust (relying on Froese v. Montreal Trust Company of Canada (1996), 1996 CanLII 1643 (BC CA), 137 D.L.R. (4th) 725 (B.C.C.A.), at para. 46, and D.W.M. Waters, Waters’ Law of Trusts in Canada, 2nd ed. (Toronto: Carswell, 1984), at p. 104).
[54] According to Raponi, in overlooking that Olympia Trust’s duty to warn could arise from the scope of its engagement rather than the four corners of the Declaration of Trust, the motion judge made a legal error. Raponi argues that cases such as Froese establish that, despite express trust terms to the contrary, a trustee will be liable for breach of trust if it fails to respond to discharge its obligations as a watchdog with a duty to warn. As McEachern C.J.B.C. stated in Froese, at para. 46:The real question in this case, in my judgment, is whether a prudent, alert pension administrator must respond not just to ordinary administrative matters, but also to unusual events within its cognizance that puts the beneficiaries at risk. Thus, in my view, the responsibility of a custodial or administrative trustee in particular circumstances should include at least the function of a watchdog. [Emphasis added.] [55] In light of Froese, in Ivany et al. v. Financiere Telco Inc., et al., 2013 ONSC 6347, at para. 58, Lauwers J. (as he then was), found it was not plain and obvious that a trustee owed no “duty to warn” and therefore found a cause of action under s. 5(1)(a) of the CPA had been made out. In Ivany, the trustee confirmed in the trust instrument that the trustee was not responsible in any way for the investment. Additionally, the investor had represented to the trustee that he conducted his own due diligence, and that he released the trustee from any liability arising from the investment.
[56] Olympia Trust argues that these (and other cases relied on by Raponi) should be distinguished, as Olympia Trust acted as a trustee under a tax statute not as a pension plan trustee, had no discretionary authority to select investments, and had a direct contractual relationship with investors expressly setting out the limited scope of its engagement.
[57] Additionally, in Froese and Ivany, the trustee was alleged to have specific knowledge of fraudulent activity, where in this case, Raponi argues the trustee should have exercised due diligence to obtain such knowledge.
[58] The motion judge emphasized the contextual nature of the analysis with respect to the scope of trusts duties. He stated:It is plain and obvious that Mr. Raponi’s breach of trust and breach of fiduciary duty thesis does not establish a reasonable cause of action. The existence of trust and fiduciary duties requires a case-by-case analysis and the court will analyze the trust and contract terms as well as the circumstances and nature of the relationship. The scope of a trustee’s or a fiduciary’s duty arises within the scope of the engagement and the functions assumed by the trustee or fiduciary in a given case.
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It is a major doctrinal premise that underlies Mr. Raponi’s causes of action based on breach of trust and breach of fiduciary duty that fiduciary and trust duties are immutable and cannot be restricted or nullified. This premise is false, and the truth is that the scope of a trustee’s and a fiduciary’s duties are a matter to be determined on a case-by-case basis. [Footnotes omitted.] [59] The motion judge reviewed the criteria for the formation of trust and fiduciary duties in detail. He considered and rejected the existence of such duties within Olympia Trust’s scope of engagement in this case. I see no basis for appellate intervention with this finding.
[60] Alternatively, Raponi raises the possibility that the Declaration of Trust, to the extent it purports to displace this “watchdog” role for Olympia Trust, may be rendered invalid as contrary to public policy.
[61] The motion judge reviewed the authorities cited by Raponi for this proposition and rejected them on the basis that they arose from an analysis of the trust duties in those particular factual settings, all of which could be distinguished from the facts of this case.
[62] Olympia Trust urges the court to reject the notion that it should impose duties that are inconsistent with the trust agreements on the basis of a general “watchdog” duty. Olympia Trust highlights that Raponi’s contention rests on the assumption that the ITA imposes statutory duties on trustees, which the provisions insulating trustees from liability in the Declaration of Trust contradict. According to Olympia Trust, as set out by the motion judge, neither assumption is correct.
[63] I agree. Whatever the scope of a court’s discretion might be where terms of a trust agreement are inconsistent with a trustee’s statutory duties, that scenario does not arise in this case.
[64] I would dismiss this ground of appeal. . Carroll v. Toronto-Dominion Bank
In Carroll v. Toronto-Dominion Bank (Ont CA, 2021) the Court of Appeal considered an interesting whistleblower standing case where a former bank employee sought an application for various remedies that were directed at exposing the bank's breach of fiduciary duty to investors. One of the issues was whether the applicant was a 'constructive trustee':[46] The motion judge was also correct in rejecting Ms. Carroll’s contention that she could sustain a standing claim based on her potential liability as a constructive trustee. There are three possible avenues to personal liability as a constructive trustee:• As a “knowing assister”, who knowingly or wilfully blindly encouraged or assisted in a dishonest and fraudulent breach of trust: Air Canada v. M & L Travel Ltd., 1993 CanLII 33 (SCC), [1993] 3 S.C.R. 787, at pp. 809-11;
• As a “knowing receiver”, who knowingly, or wilfully blindly, or with knowledge of facts which would put an honest person on inquiry, received trust property in their own capacity in breach of trust: Air Canada, at pp. 810-13; or
• As a trustee de son tort, who assumed the role of trustee without proper appointment and then breached the trust: Air Canada, at pp. 808-9. [47] The motion judge addressed the first avenue of potential liability, “knowing assistance”, and dismissed it because there was no evidence before her that Ms. Carroll participated in any breaches of trust. Indeed, the pleadings before the motion judge maintained that Ms. Carroll made efforts to prevent and remedy any alleged wrongdoing.
[48] Ms. Carroll argues on appeal that, despite this, it is not plain and obvious that she would not be exposed to personal liability as a constructive trustee, given her role as a corporate officer of the Trustee at the time the maladministration occurred. I disagree. The motion judge was correct in finding that there was no foundation that could support Ms. Carroll’s liability as a knowing assister. There was no need for the motion judge to address knowing receiver or trustee de son tort liability, as neither form of liability is even hinted at in the pleadings. Absolutely no suggestion is made that Ms. Carroll received trust property, and there is no indication that she assumed the role of trustee.
[49] In these circumstances, the fact that Ms. Carroll sought indemnity in her application does not provide a path for her standing. “It is incumbent on the claimant to clearly plead the facts upon which it relies in making its claim”: R. v. Imperial Tobacco Canada, 2011 SCC 42, [2011] 3 S.C.R. 45, at para. 22. Ms. Carroll has pled no facts that could support such relief. Carriere Industrial Supply Limited v. Toronto-Dominion Bank
In Carriere Industrial Supply Limited v. Toronto-Dominion Bank (Ont CA, 2015) the Court of Appeal set out the elements required to find 'recklessness' in a breach of trust case, drawing from a parallel definition of that term in a Supreme Court of Canada criminal case:[30] As stated by the trial judge at para. 94, the Bank “had clear notice of a real possibility of past actions constituting a breach of trust in respect of the operations of TPC, possibly extending to fraud, by an unknown party.” In continuing to afford unmonitored access to electronic banking facilities in the face of this knowledge, the trial judge found the Bank acted recklessly.
[31] As we read the trial judge’s reasons, the knowledge component of his conclusion was premised on the information the Bank had, not on its failure to acquire additional information through monitoring. As the Supreme Court of Canada stated in R. v. Sansregret, 1985 CanLII 79 (SCC), [1985] 1 S.C.R. 570, 17 D.L.R. (4th) 577, recklessness consists of knowledge of a danger or risk and persistence in a course of conduct that creates a risk that the prohibited result will occur. In our view, the trial judge did not misapply this definition.
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